68 Pages Posted: 27 Jul 2006
Date Written: July 20, 2006
Benefit-Cost Analysis (BCA) is an inherently controversial practice, but it could be rendered substantially less controversial than it is at present by improving its methodological consistency. As a matter of policy, the method of BCA has improved over the past two decades, but the practice of BCA in the federal government remains inconsistent and highly influenced by partisan politics.
This paper explores the recent history of BCA policy and practice in the federal government and offers recommendations for further methodological improvements. Most importantly, this paper argues that the task of determining best practices for environmental BCA should be removed from the federal agencies that produce and consume those analyses. Because of their divergent institutional missions and political predilections, those agencies are unlikely ever to agree on a single, consistently applied set of best practice standards. And, after all, society does not rely on government agencies to determine best practices in other fields such as medical practice, scientific research, or agricultural production. In those fields, best practices are determined by the respective experts, i.e., doctors, scientists, and farmers.
In the field of BCA, the National Academy of Sciences or some nongovernmental organization such as the Association of Environmental and Resource Economists or a new Society for Benefit-Cost Analysis should appoint a task force of economists, policy analysts, and maybe a legal scholar or two to establish best practices. The goal would not be to establish a neutral or objective set of practices; BCA simply contains too many subjective elements to ever claim that mantle of objectivity. However, a set of (revisable) best practices established by an independent group of experts is likely to be less politicized and more legitimate than any product of the OMB or other government agency.
The best practices produced by an independent group of experts would not have direct legal force. They would, instead, constitute social norms to influence how government agencies prepare and use BCAs. To the extent regulatory BCAs deviated from those norms without explanation, those BCAs would be subject to criticism. It is even possible that the federal courts could adopt an independently derived set of best practice standards for assessing regulatory BCAs in judicial review under the Administrative Procedures Act.
In sum, the adoption of methodological best practices for environmental BCA could have four positive effects: (1) it presumably would reduce, at the margins, political opposition to BCA as a policy tool; (2) it would render BCAs more regular in form and format and, thus, more readily assessable and replicable by social scientists; (3) it might reduce (though not eliminate) politically-motivated, inter-agency methodological disputes; and (4) it would provide a sound, consistent and independent basis for judicial review of agency BCAs.
Keywords: benefit-cost analysis, method, discounting, valuation, judicial review, OMB, EPA
JEL Classification: D61, D78, H43, K23, K32, 022, Q28
Suggested Citation: Suggested Citation